The 1980 United Nations Convention on Contracts for the International Sale of Goods

Article 7
Convention Interpretation

75. Article 7 contains two rules regarding the interpretation of the Convention itself; the first of these provides as follows:

'(1) In the interpretation of this Convention, regard is to be had to its international
character and to the need to promote uniformity in its application and the observance
of good faith in international trade.'

76. The Convention is a supranational statute, a binding piece of international legislation.
And so the courts of all CISG Contracting States are bound to respect the letter of the law.
Indeed, when a question arises as to how a given part of the Convention should be
understood, the most natural interpretation is likely to be the 'plain meaning' of the treaty
text.[1]

77. In many cases, however, the 'plain meaning' and/or proper application of (the six, equally authentic versions of) a given Convention' provision will not be clear, thus giving rise to more than one possible interpretation or application in the concrete case. In these cases, Convention interpreters can seek guidance in secondary sources of the CISG rule of law.[1]

Since the Convention is a statutory instrument (a treaty), some interpreters will seek
evidence of the international legislator's intent. Some might, for example, look back to the
ULIS (that which came before CISG): but although a number of CISG provisions seem
similar to those in ULIS, that does not necessarily mean that the (different) legislators of these
(different) treaties possessed the same legislative intent.[2] Indeed, the entire CISG 'legislative
history' (travaux préparatoires), while voluminous, it is often inconclusive.[3] Nor should the
unofficial 'Secretariat Commentary' to the 1978 draft Convention be allowed to serve
(anywhere) as an authoritative CISG guide.[4]

Given these unclear international guideposts, it is understandable that national courts may
sometimes - perhaps unwittingly - tend to interpret the CISG in accordance with well-entrenched domestic views, inter alia, in cases where the Convention terminology seems
reminiscent of (older) local law.[5] Indeed, the [page 49] problem here is not just the risk of diverging (yet viable) interpretations; in some casest a given
'domestic' interpretation may lead to a clearly wrong CISG result.[6]

In order to guard against such inappropriate consequences, Article 7(1) tells courts and
arbitrators that regard is to be had to the international character of the Convention and to
the need to promote uniformity in its application. The implication here is that an independent
(autonomous) interpretation should be undertakent (at least) with a view towards achieving
results acceptable to a significant number of CISG Contracting States.[7] On the other hand, the flexible command set forth in paragraph (1), working in tandem with the equally flexible
(governed-but-not-settled) rule in paragraph (2), hardly compels courts and arbitrators to pursue
the uniformity goal at all costs.[8]

As regards case law (precedent), it is significant that no international court has been made
competent to interpret the CISG.[9] And yet, since Article 7(1) requires courts to display (due)
'regard' to the international character of the Convention and to the need to promote uniformity
in its application, national courts are bound to at least take account of CISG foreign
precedents [10] - a task made easier by CLOUT (Case Law on UNCITRAL Texts) and other
systems which report the numerous CISG decisions rendered by courts and arbitral tribunals
around the world.[11] Of course, since the decisions from (even the highest) courts of other
jurisdictions can at best achieve status as 'persuasive' (as opposed to binding) precedent, a truly 'international' interpretation of the Convention remains a most difficult task.[12]

When interpreting the CISG treaty, 'regard is [also] to be had' to the observance of good faith in international trade. Hardly by accident, this aspect of the Article 7(1) mandate might
seem to fall short of domestic analogues which lay down the good faith duties of contracting
parties (indeed, some Convention drafters feared the 'uncertain' contours of that kind of thing).
But the distinction between good faith interpretation and good faith performance is proving to
be more apparent than real, especially since 'matters governed by this Convention which are
not expressly settled in it are to be settled in conformity with the general principles on which
it is based';[13] in fact, general Convention principles of reasonable conduct and venire contra
factum proprium have already been identified as specific elements of an even more general
Convention principle which requires both CISG parties to act in good-faith.[14]

78. Whereas Paragraph 1 of Article 7 provides general rules for the interpretation of the sales treaty, Paragraph 2 contains a special rule designed for the settlement of matters
'governed by' but 'not expressly settled' by the Convention. This provision provides as follows:

'(2) Questions concerning matters governed by this Convention which are not expressly
settled in it are to be settled in conformity with the general principles [page 51] on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law.'

79. Article 7(2) provides a potentially powerful tool which courts and arbitrators can use
to plug 'gaps' in the literal CISG text. By locating a relevant CISG 'general principle' for the
resolution of a matter 'governed but not settled' by the Convention text, decision-makers can
remain within the four comers of the treaty in situations where they otherwise would need to
revert to other (usually domestic) rules of law. In this respect, Article 7(2) might be described
as dealing with a 'preemption' problem: when and to what extent should CISG general
principles be used to settle matters not expressly settled in the Convention, thus preempting
potentially competing (non-CISG) rules of law?

First, it should be emphasized that paragraph (2) can only be applied with respect to
matters which are governed by the Convention but which are not expressly settled in it ('les matières régies par la présente Convention et qui ne sont pas expressément tranchées par
elle'). Conversely, it seems clear that certain questions - such as those relating to the validity
of the sales contract, third party rights, etc. which are not governed by the Convention can
only be settled by resort to rules outside the Convention, (usually) domestic rules of law.[1]

It should also be noted some problems which might be solved by the application of Article
7(2) might also/alternatively be solved by means of analogy, even though Article 7(2) surely
also authorizes a more fluid kind of judicial decision-making than that associated with
analogy in the traditional sense.[2] For example, since CISG Article 13 clearly governs the
issue (matter) of how to define a 'writing', one might argue that the possible extension of
Article 13 to more modern means of communication (e.g. telefax) is a 'matter' governed-but-not-settled by the CISG,[3] although it might then require some creativity to locate a CISG
general principle with which to resolve this matter. But we might also try to resolve the matter
by simply making an analogy between telefax and the means expressly listed in the
Convention text.[4]

In any case, one can hardly maintain that the CISG governs all 'matters' which relate to
sales contract formation and the rights and obligations of the parties, i.e., even though the
Convention obviously governs a long list of individual matters within this broad range.[5] For
example, although Article 8 contains rules which govern certain aspects of a larger problem -
i.e., the interpretation of CISG contracts - we cannot on that basis conclude that the CISG governs the entire (contract interpretation) 'matter'. In other words, Article 8 does not
displace (preempt) all other rules of contract interpretation, (e.g.) the familiar rule that unclear
terms should be interpreted contra proferentem; and since Article 8 does not even 'govern'
this particular 'matter', there is no occasion to search for a 'general [CISG] provision' with
which to resolve it.[6]

Still, those decision-makers who favour a highly autonomous interpretation and
application of the treaty will be able to open the Article 7(2) flood-gates quite wide, and
commentators have already fleshed out numerous CISG 'general principles' for use in
pursuing that end, inter alia, the (very general) principle of good faith.[7]

Two arbitral awards from Vienna (both concerning the buyer's refusal to pay for non-conforming metal sheets) illustrate the scope of the gap-filling power of Article 7(2).[8] The first
(and more controversial) application relates to the fact that [page 52] Article 78 provides for the payment of interest (on the price and other sums in arrears) but
does not set the rate.[9] Most courts and arbitrators have filled this 'gap' by resorting to
domestic law, but the tribunal in these cases decided that the rate of interest was a 'matter'
governed-but-not-settled by the CISG and then proceeded to settle the 'matter' (the rate) by
reference to the (general CISG) 'principle of full compensation', i.e., the principle that a CISG
promisee should be compensated for all (foreseeable) losses caused by the other party's
breach. Seeking to rise above other, more provincial solutions, this Viennese tribunal thus
found the means to 'settle' a matter which (in 1980) could not be settled by the Vienna treaty
drafters.[10]

The second Article 7(2) application by the same tribunal concerned the failure by the
buyer, upon receipt of the goods, to comply in timely fashion with the notice requirements of
Articles 38 and 39.[11] Since the seller previously had led the buyer to believe that the notice
defense would not be raised, the question was whether the seller should now be estopped
(venire contra factum proprium) from setting it up. Having assumed that this 'matter' (the
seller's possible forfeiture of the defense of late notice) is governed but not expressly settled
by the Convention, the tribunal held that estoppel was a general CISG principle (a special
application of the even more general CISG principle of good faith), thus paving the way for a - just and reasonable - ruling without recourse to non-Convention rules of law.[12]

In a bolder - and more controversial - expedition within the Article 7(2) realm, a German
appellate court ruled that, for purposes of determining its jurisdiction vis-à-vis an American
defendant-seller, the place at which that seller was to pay damages (if ultimately held liable
to the German plaintiff-buyer in respect of third-party personal injury claims) was a matter
governed-but-not-settled by the CISG.[13] The court cited Article 57(1)(a), which deals
expressly with the buyer's duty to pay the price, as evidence of a CISG general principle that
all 'payments' (including damages awarded for a CISG breach) are to be made at the
creditor's place of business; and since the plaintiff-buyer's business was in Germany, the
German court held it had jurisdiction to decide the case. CISG commentators have criticized
this decision on various grounds,[14] and the court's application of Article 7(2) might well head
the list.[15]

80. If no relevant CISG 'general principle' can be found, then Article 7(2) provides that the 'matter' in question must be settled 'in conformity with the [substantive] law applicable by
virtue of the rules of private international law' (PIL).

Usually, the PIL (choice of law) rules will point to a domestic substantive law rule.[1] In some commercial situations, however, the applicable substantive rule may prove to be an international rule, e.g., a rule located within the larger body of lex mercatoria; in such case, the decision-maker will in all likelihood have located a highly appropriate adjunct to the
international CISG regime.[2]